Economics, compliance and Nick Hogan

In the forthcoming issue of Regulation (not online yet), the economist Michael Marlow looks at smoking bans from an interesting angle. Rather than looking just at revenue, he looks at compliance. Why? Because if bars are prepared to break the law despite the threat of a financial penalty, they must find it economically rewarding to do so. 

Of course, hardened anti-smoking campaigners simply deny smoking bans harm the pub trade. Their insistence on a win-win from regulation sits uneasily with economists. Some pubs do benefit, of course, depending on location and clientele. Often the winners are the pubs that can offer outdoor smoking facilities, beer gardens or some protection from the elements. But these facilities alleviate the damage caused by the ban, they do not add value in themselves. Having a beer garden in January would not normally draw the punters. Only as a result of the law does such a facility suddenly become economically beneficial, and even then only at the expense of the less fortunate 'land-locked' pub down the road. 

The 'adaptation' or 'evolution' of pubs—by which people mainly mean the shift towards food—also represents an attempt at limiting the damage. As Marlow says:

Deborah Arnott, chief executive of the anti-smoking group ASH, insisted it was a myth that the smoking bans in any way damaged pubs. Arnott stated: “Many pubs have shifted their focus to serving food, so they have changed their nature.” But her analysis is flawed; shifting away from alcohol and toward food reflects harm reduction efforts, and likely would have been implemented prior to the ban if they were truly profit-enhancing.

So what is the truth about compliance? This is an area that has generally received only a superficial treatment. ASH et al. tend to bandy around a 97-99% compliance rate but this is based on a self-reported survey*. More reliable figures are harder to come by, but an undercover surveillance study in 8 Scottish pubs (admittedly a very small sample) found that the law was being widely flouted in three of them, with less flagrant violations in several others.

A 2008 study by Douglas Eadie et al. of Scotland’s ban found that, despite government claims of 98 percent compliance, compliance rates from a sample of eight bars varied substantially, with the lowest levels observed in bars located in lower-income neighborhoods. 

These studies never entertain the hypothesis that noncompliance indicates bans harm some businesses.

I'll come back to the Scottish study in the near future as it has some very interesting findings but, as you will know if you listened to the podcast I mentioned at the weekend, what Marlow is particularly interested in is the situation in Ohio. He's been waiting for the Ohio data for a long time and now he has it...

As you can see, there were more than 33,000 violations over two and a half years. Obviously these are just the number of times these businesses got caught—the true total can only be guessed at. With over 1,000 recorded violations every month, clearly not everybody is 'winning' from the smoking ban and, equally clearly, not everyone is happy with it.

Restaurants make up only a small number of violations. This is as you would expect, since many of them were non-smoking before the ban came in. Complaints from other customers are also more likely in restaurants than in organisations (ie. private members' clubs), which take up a disproportionately large chunk of the pie chart.

Conclusion:

Noncompliance data indicate that smoking bans impose economic harm on some bars, restaurants, and organizations, with continued noncompliance mostly in bars and organizations. Cases of continued noncompliance apparently indicate where smokers congregate and continue to smoke in the presence of the ban. 

Previous studies underestimated harm to the degree that continued noncompliance indicates higher losses from greater enforcement. Public health authorities rarely publicly complain about noncompliance, since drawing attention to these owners is inconsistent with claims that bans do not cause economic harm.

On a far-from-unrelated note, Robert Prasker has recently conducted an interview with publican Nick Hogan, who talks about his experience as the first British man to be sent to prison in relation to the smoking ban. Well worth listening to—you can hear it here. 

*Update: A YouGov survey is mentioned in ASH's Myths and Realities document; the link to the DoH data is broken. A later DoH document—One Year On—found 98% compliance from actual inspections. There is, however, no breakdown of which premises were visited. Does it, for example, include shops, churches, libraries etc? If anyone knows of specific for data for bars and restaurants please let me know.

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